Among the construction firms found by the Office of Fair Trading to have infringed competition law by rigging bids or cover pricing were Balfour Beatty, Carrillon and other major private finance initiative (PFI) contractors. Bid rigging involves submitting an artificially high price so as to give the appearance of competition – and in cases discovered by the OFT, artificially inflating the public sector's bill for building universities, schools and hospitals. But the true impact on the public still remains hidden because private finance initiative contracts were not part of the OFT's investigation – although they are the the dominant form of procurement in the delivery of new roads, waste facilities and indeed hospitals and schools.

Presumably PFI contracts were not included in the OFT enquiry because of the scale and size of the contracts, while the procurement process is so long and complicated it would be difficult to uncover "cover pricing". PFI now accounts for £63.5bn worth of schemes in capital value, although the total public sector repayments are in the order of £150bn, rising to £245bn over contracts of up to 60 years when services are included.

There is already considerable evidence of lack of competition for PFI contracts. As a National Audit Office report Improving the PFI Tendering Process noted, one third of PFI projects attracted two bidders or fewer between 2004 and 2006 mainly because of lack of bidder interest. PFI schemes are characterised by a small number of very large firms competing for contracts; very few firms have the economies of scale and financial muscle to lever in funds, while the high bidding costs and tendering periods act as serious disincentives. In several cases there has only been one bidder: the provision made in the government's guidance for the ACAD hospital in Glasgow, for example, suggests this is commonplace. Even in the absence of cover pricing, the small size of the competition for PFI schemes makes other forms of cartel activity likely.

Second, under PFI, the procurement process is so complex that years can elapse between the selection of the preferred bidder and the final sign-off on the contract. During that period the contract itself together with the costs changes dramatically, and all in the absence of any competition. Our research shows how PFI hospitals on average almost double in costs, with significant changes to the design and specification.

Take University College London Hospital, where the costs of the PFI project increased from £120m to the order of £430m in the three-year period prior to signing off. Similar escalations rendered the billion-pound St Mary's Paddington hospital PFI scheme unaffordable, while the Barts and the London hospitals are grappling with their own affordability issues, and Worcester's PFI hospital faces swingeing cuts. All these experienced dramatic cost escalations after the selection of the preferred bidder, with consequences further down the line for public services meeting the costs from annual operating budgets.

Perhaps the most significant thing about the report is that it shows the extent to which companies are capable of forming cartels at public expense. The OFT's concern that cover pricing limits competition and leads to overcharging is also interesting since all PFI schemes are awarded after long periods of exclusive negotiations in which all competitive tension is removed.

Following selection of the preferred bidder, there is no further competition or benchmarking of the costs against other bidders despite the fact that contract negotiations may take several years. But the number of competitors is so small and the market so large this practice has gone unchallenged. Not only could the public be paying too much for construction costs, they are also paying too much for the cost of finance (as the NAO report into the financing competition for the new Treasury building revealed).

Now, the OFT reports points towards a new dimension to the problem – bid rigging. It is time to have a proper investigation into the PFI bidding and procurement practice; cover pricing, an absence of bidders and cost escalation at the preferred bidder stage are all hallmarks of an uncompetitive market and cartel activity – and all conceal the true costs of PFI to the government and the taxpayer.